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ECON 1BB3 Lecture Notes - Marginal Product, Production Function, Human Capital Flight

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Bridget O' Shaughnessy

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Economics January 29th, 2013 Lecture Notes
Productivity: The quantity of goods and services that a worker can produce for
each hour of work.
Determinants of Productivity:
1. Physical Capital
2. Human Capital
3. Natural Resources (renewable, non-renewable)
4. Technological Knowledge
Production Function: Shows how we combine inputs to produce output
Equation: Y = A * F (K, L, H, N)
Y = Output
A = Technology
K = Physical Capital
L = Labour
H = Human Capital
N = Natural Resources
If a production function exhibits constant returns to scale, then doubling all inputs
leads to a doubling of output.
1. 2Y = A * F(2K, 2L, 2H, 2N)
2. 100Y = A * F(100K, 100L, 100H, 100N)
3. xY = A * F(xK, xL, xH, xN)
4. (Y/L) = A * F(K/L, 1, H/L, N/L)
Diminishing Marginal Product
Product: Output
Marginal product: The extra output produced by increasing an input by 1 unit
Diminishing Marginal Product: The extra output produced by adding the 19th unit
of labour is smaller than the extra output produced by adding the 18th unit of labour.
Catch-up Effect
Catch-up effect: Poor countries tend to grow faster than rich countries
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